US-based Tesla is completing an agreement to make electric vehicles (EV) in India for the first time, opening up a new growth opportunity after setting up production in China.
Tesla has picked Karnataka, a southern state whose capital is Bangalore, for its first plant, the state’s chief minister said. The automaker has been negotiating with local officials for six months and is actively considering car assembly in the suburbs of Bangalore, people familiar with the matter said.
The company is conducting due diligence for office real estate in the region and plans to set up an Research & Development facility, said the sources. Tesla has focused on Bangalore because it’s shaping up to be a hub for electric vehicles and aerospace manufacturing talent, they said. Tesla has incorporated its Indian unit and registered offices in downtown Bangalore.
India entry challenges
The company’s Chief Executive Officer Elon Musk all but confirmed Tesla would enter India in January after months of speculation. Despite the hype, Tesla’s foray into India may well prove challenging. The country hasn’t yet rolled out facilities for EVs like neighbor China, where Tesla set up its first factory outside of the US and now dominates sales of premium EVs.
EVs account for about 5 percent of China’s annual car sales, according to data, compared to less than 1 percent in India.
“Considering the price of a Tesla, Elon Musk probably won’t be able to sell an EV to most of the population in emerging economies,” said experts. “However, looking at the size of the population and the potential for economic growth, Tesla will probably target a fast-growing group of affluent individuals that, in absolute terms, compares quite favorably to what we see in many developed countries.”
The expensive cost of a Tesla is viewed as a negative point by other market watchers, too. Analysts noted that the “size of the luxury car market in India is minuscule with brands like BMW, Mercedes, Audi and Jaguar Land Rover accounting for just 30,000 to 50,000 sales annually.”
And despite India’s broader potential, charging infrastructure remains another obstacle to large-scale EV adoption.
According to the International Energy Agency (IEA), around 60 percent of the world’s public slow- and fast-charging spots are in China. As Chinese carmakers roll out competitive EV models and develop a diverse ecosystem, the country is “heading toward disrupting the current global auto industry landscape,” analysts said.
India has been making similar moves, but not yet on the same scale.
In 2015, it launched a Faster Adoption and Manufacturing of Hybrid and EV (FAME) plan, with a $123 million commitment to subsidies that cover everything from electric tricycles to buses, according to the IEA. A second generation of the FAME program introduced in 2019 was larger, to encourage EV purchases and build out charging infrastructure.
India also cut the goods and services tax on EVs to 5 percent from 12 percent, effective August 2019, much lower than the levies of as much as 28 percent slapped on other motor vehicles, which have attracted criticism from companies like Japan’s Toyota Motor.